Facebook Music: The New Social Connectivity

It's a generally accepted fact that Apple saved the music business. In the '00s with the iPod, iTunes and a fierce vision for a new way to experience music, Apple created a sensational alternative to illegal services and inferior legal ones. Music would never be the same.

But times change. Now, another single company offers the industry its best chance to reinvent itself, usher in a new age of innovation and make the business and the experience of music exciting yet again. And that company isn't even a music company.

Like it or not--that company is Facebook.

There won't be a licensed music service or beautifully designed MP3 players. Facebook just wants your time.

It's the place where 142 million Americans spent 53.5 billion minutes in May, according to Nielsen--by far the most of any single website or brand. According to Facebook, it has 700 million global users with an average of 130 friends each. This command on Americans' time gives music companies what they need for the next generation of digital products: a "social graph" that represents relationships between its 700 million users and the things they care about: movies, books, videos, events and music. The latest version of the Open Graph, debuted at Facebook's Sept. 22nd f8 conference in San Francisco, allows companies to integrate their websites with Facebook's vast social structure in new ways. By tapping into the Graph API, or application programming interface, sharing activities and interests is easier and more powerful than ever.

As a result, companies are building better, more meaningful products that take advantage of consumers' social nature. Clear Channel executive VP of digital Brian Lakamp calls it the "social connective tissue" that brings the value of millions of personal relationships into his company's new iHeartRadio service. Pandora, Spotify and Ticketmaster use it, too.

In short, there seems to be an agreement that Facebook makes products better. And without its Graph API and the breadth of its user base, a wide range of music services would be stuck in the 2000s.

Entire new markets are sprouting up around its social platform. RootMusic, whose BandPage app allows artists to market themselves on Facebook, raised $16 million from GGV Capital, Northgate Capital and Mohr Davidow Ventures. In January, FanBridge announced a $2 million funding round and the acquisition of San Francisco-based Damntheradio, creator of a music-oriented Facebook marketing app similar to BandPage.

More established companies are also investing in the platform. Ticketmaster, one of the world's largest e-commerce companies, now builds it products "on the rails of social," CEO Nathan Hubbard says. In August Ticketmaster unveiled an interactive seat map where users can see where their Facebook friends are sitting at a particular event. "This is just the start of a host of features in social that you'll see across everything we do."

Artist services company ReverbNation already had a popular Facebook marketing app for artists when in September it launched an advertising service called Promote It that uses Facebook's Ads API to help artists create effective ad campaigns on the platform. Promote It is a major investment with a dedicated team of engineers who have been working on it since December, ReverbNation COO Jed Carlson says.

The social network has even helped birth a new generation of ticketing companies. Eventbrite has raised nearly $80 million to date. Ticketfly has raised $15 million, including a $12 million round in April. TicketBiscuit, Ticket ABC and ShowClix have also raised funding in the last year. All can attribute some portion of their success to social marketing enabled by Facebook.

Ticketfly CEO Andrew Dreskin, whose first ticketing company TicketWeb launched in 1995, calls social media "a watershed moment" for ticketing because artists and venues can harness the marketing power of fans. "It's a dream come true for ticket sellers."

In fact, a number of ticketing companies are part of Facebook's Open Graph launch: Ticketmaster, Ticketfly, Eventbrite and secondary ticketing services StubHub and ScoreBig.

Facebook could eventually transform e-commerce, too. Already such companies as Moontoast, Topspin Media and Nimbit offer the tools to let people set up online stores within Facebook. Shopping within the platform is in its early stages but is a promising channel-what's more seamless than making a purchase where you already spend your time online?

Ticketmaster could end up selling tickets within the Facebook platform, Hubbard says. Although he notes that "some evidence shows people prefer separate commerce and content experiences," Hubbard says that Facebook is "doing a really great job" of driving awareness to its events. "If that ultimately means creating a more seamless experience by integrating e-commerce into the social experience, we're going to be there."

But Facebook's biggest contribution to music could be in the area that needs the help most: music subscription services. If iTunes boosted digital music into low-earth orbit, Facebook can send it on a course to the moon by turning subscription services into a household product.

Facebook solves a number of key problems that might otherwise doom cloud-based music services that offer unlimited access to large catalogs of music. Spotify, MOG, Rdio and even veterans Rhapsody and Napster need to generate greater public interest. Subscription services could represent the future of music, yet they accounted for just 5% of U.S. digital sales in 2010, according to IFPI's "Recording Industry in Numbers 2011" report.

They need word-of-mouth marketing. Fortunately for them, Facebook's immense audience, combined with the viral nature of social media and people's passion for music, creates a powerful channel to promote these products. "It's one of the most cost-effective routes," Rdio COO Carter Adamson says, "in terms of marketing these services."

Reaching the biggest possible audience at social networks means giving consumers a free taste in hopes of later converting them into paying customers. So, subscription services are tweaking their business models accordingly. In mid-September, both MOG and Rdio announced free versions of their subscription music services. (Spotify has had a free tier of service since its U.S. launch in July.) Both will give consumers free listening on their Web-based services-but all-important mobile access will cost extra.

The timing of the announcements was hardly a coincidence. Facebook's f8 developers' conference was a week away and new integrations with a variety of music services were set to be unveiled. Executives from both companies expressed a desire take advantage of the social nature of music by reducing the barriers to using their services. "Obviously we wanted to be as friction-free as possible, free to share and play music with friends on Facebook and other places," Adamson says.

MOG and Rdio are just two of the music services that announced Facebook integrations during the f8 conference. Spotify, Rhapsody, Deezer, iHeartRadio, Mixcloud, Turntable.fm, Earbits, Songza and SoundCloud are also integrated with Facebook's new Open Graph so users' listening activity appears in their friends' news feed. Because they offer free listening in one fashion or another, music played on these services can easily be experienced by friends, too.

Rhapsody isn't following its competitors' move into free music, however. The veteran company believes its premium service is a better marketing tool than a free one, Rhapsody president Jon Irwin says. Rather than opening up its service to the masses, it will stick to offering free trials because "the amount of time you can experience the service for free may be shorter, but the value of the experience you're going to have is orders of magnitude greater."

But perhaps Facebook's most important gift to subscription services will be its social graph, that connective tissue that can instantly give context to unwieldy catalogs of music as large as 15 million songs. Imagine a new subscriber who signs up for a premium subscription service. Combing the catalog for desirable music is a daunting, herculean effort-even with the service's best editorial efforts. Most services allow customers to import their iTunes playlists, but what about finding music beyond what's already familiar?

Connecting the music service account to one's Facebook account instantly allows the user to share musical experiences with friends. By receiving friends' recommendations, and by browsing others' playlists and cloud-based collections, a catalog of 15 million becomes more manageable and more valuable.

Context wasn't always so important. Sharing an MP3 playlist has been either too technically complicated or too cost-prohibitive. Sharing large numbers of MP3s is a cumbersome process. And sharing in the MP3 world is an asymmetrical exercise: People may share what they've purchased on iTunes, but they can't share the actual music experience unless the recipient also owns the music.

A subscription service can make sharing easy if three criteria are met, says Gustav Söderström, Spotify's Stockholm-based chief product officer. The music needs to be a link rather than a file. The shared music must not have any marginal cost (otherwise sharing can become a financial burden to the recipient). And there needs to be a free tier, which many services have already discovered.

Those three factors, combined with the power of Facebook's Graph API, seem to be getting results for Spotify. Söderström wouldn't share exact numbers, but he says Spotify's examination of its users' behavior has shown a correlation between Facebook and high engagement. Users who connect their Spotify account to Facebook listen to a wider variety of tracks, have more than double the number of playlists in their libraries and are more likely to convert to being a paid user than those who haven't linked their accounts. And although he wouldn't reveal what percent of Spotify users have linked the two accounts, "it's a big number and a very popular feature," he says.

It's probably more than a coincidence that Spotify is perhaps the most social of all music services and also the one with the most hype, attention and momentum. The service already has a reported 140,000 paying subscribers in the United States, putting it well ahead of both Rdio and MOG, according to industry sources.

Now expected to be in serious competition with Clear Channel's newly launched iHeartRadio app, Pandora, which already has more than 100 million registered users, debuted a redesigned and more social product on Sept. 21. In the original version, Pandora found it difficult to add social features in a way that "felt native to the experience," chief technology officer Tom Conrad says. So when the company started a redesign of Pandora about a year ago, its top goal was making sharing songs and stations much easier.

The company wanted to help its users share music with people who are likely to be interested as well as with "musical mentors," a group of people that Conrad says may or may not include close friends. The result was a Facebook-powered music feed that's solely about music discovery. Sharing on Pandora defaults to the ecosystem but can be expanded to a user's Facebook followers with an additional button click. The results have been encouraging, Conrad says. "The amount of sharing people are doing on the new Pandora has increased by a factor of between five and 10 times."

Others are seeing good returns, too. Hubbard says adoption of Ticketmaster's social seat map feature has been "fantastic" and that 80% of buyers who "tag" their seats choose to share their location with everyone, not just their Facebook friends. "That's what I think is really cool about these seat maps-they're part of the power of the event . . . for people to potentially begin to expand their own networks," Hubbard says.

If not for Facebook, what else would companies use to build social features? For creating context, enhancing the live experience and enabling music discovery, music services don't have many other options. Google's new Google Plus social network debuted to rave reviews but lacks Facebook's audience and developer interest. It at some point may be a formidable Facebook foe, but for now it's too niche.

Two leading alternatives are Twitter and Tumblr. But Facebook has a "relationship structure," Spotify's Söderström says. In contrast, Twitter and Tumblr have one-way social graphs, meaning that a person follows other people-often complete strangers-who don't necessarily reciprocate. That kind of social graph may be good for some companies, he says, but not for music services.

And forget about trying to build a social graph to duplicate Facebook. Söderström explains that Spotify would have to create relationships by asking its customers for their friends' email addresses. "It's just a lot more seamless to have an existing graph than to find out who your friends are yourself," he says.

Besides, Facebook's vast reach is incredibly valuable. "Things we do on Facebook hit a larger audience then they do on Twitter," Vevo GM Fred Santarpia says, pointing to a successful Facebook premiere of a Kanye West and Jay-Z performance of "H*A*M" that has accumulated 3.4 million views. "Any platform that has that kind of massive adoption represents an opportunity for partners."

Facebook dominates. Not a single executive Billboard spoke with had anything but positive things to say about his business' relationship with the company. Its executives and engineers have a reputation for being smart, agile and forward-thinking. "From my perspective, in the limited time Vevo has been here and working with Facebook, the relationship has been incredibly positive," Santarpia says. Ticketmaster's Hubbard has a similar sentiment. "I have to say they've been a really great partner to work with."

The warm feelings between music companies and Facebook are a constrast to the often combative relationships Apple has with those companies. That makes sense. Facebook doesn't license music, instead playing the role of helpful facilitator to Apple's steadfast retailer. So far, Facebook and the music biz are simply having a blissful honeymoon.

The company is playing the facilitator role with artists, too. One example is the "Musician's Playbook," a free, 40-page how-to guide that Facebook released in August. The document explains the basics of Facebook and its profile pages. It offers tips on how to increase fan engagement, upload content to pages, deal with fake profiles and facilitate the removal of copyrighted material.

Whatever the downsides of getting in bed with the world's biggest social network, companies don't seem to mind. "There's also a risk that you rely on a partner too much for too many things and something changes strategically that you do open yourself up to a risk there," Vevo's Santarpia says. "But if they're partnering, I think that's something everybody is doing with their eyes wide open and the benefits outweigh the risks."

For an upstart music subscription service like Rdio, it's a partnership that makes sense. "Once you have access to everything, the best way to discover new stuff is through people and these conversations-primarily through people you trust," Adamson says. "We'll see more and more content and verticals going social, and these conversations will continue to happen everywhere."